Non-Compete Agreements Take Another Hit in California
Topics: Court Decisions
Another California court has refused to enforce non-compete and non-solicitation clauses in employment contracts signed by California employees. In Dowell v. Pacesetter, Inc., the employees at issue worked in various capacities for a biotech company. Upon accepting employment, they signed an agreement providing that for 18 months after termination of employment they would not render services for a competitor if such service could aid the competitor in competing by application of "confidential information" the employee had access to during employment. "Confidential information" was broadly defined in the agreement to include "information disclosed to me or known by me as a result of my employment by the company, not generally known to the trade or industry in which the company is engaged, about products, processes, technologies, machines, customers, clients, employees, services and strategies...;.."
The agreement also contained a non-solicitation clause providing that for 18 months following termination of employment the employee would not solicit business from, sell to, or render service to any customers with whom the employee had contact during the last 12 months of employment.
The court determined that both the non-compete and non-solicitation clauses were void and unenforceable under California Business and Professions Code section 16600, which provides that contracts in restraint of trade are prohibited. The court further determined that the use of the agreements constituted unfair competition in violation of Business and Professions Code section 17200. The court rejected the employer's arguments that the clauses were enforceable because they were tied to protection of trade secrets and confidential information. The court stated that it doubted the continuing validity of any "trade secret exception" to 16600's prohibition on non-compete agreements, but reasoned that regardless of whether any trade secret exception still exists, it would not apply in this case because the agreement's definition of "confidential information" was much broader than "trade secret" information as defined under California law. By defining "confidential information" so broadly and precluding former employees from using such "confidential information," the employees were effectively precluded from competing altogether.
This decision is not welcome news for employers utilizing confidentiality and non-solicitation agreements for California employees, but employers should be mindful of the continuing trend of California courts in refusing to enforce these agreements.